Lost in the maze of US large-cap index funds. Which do I choose?

I know market-cap weighting one's portfolio is sort of the norm for passive investors on this subreddit. So for those of you who do that, my post isn't going to make much sense. In contrast, I equal weight my portfolio's allocation so as to maximize diversification and rebalancing benefits, the only supposed free lunch in investing.

For example: If an investor here at r/Investing hasn't sold their soul to $VTI (I keed, I keed), if they actually include a small/mid cap and international allocations in their portfolios, then Bogleheads often will hold a large cap ETF like Vanguard's $VV as their main fund. Then they'll give their portfolio a small cap "tilt" by having a small allocation in that direction. The point is they try and hold the market with the weightings of the market.

In contrast, my portfolio looks something like this:

  • 20% US large cap $VV
  • 20% US mid cap $VO
  • 20% US small cap $VB
  • 20% Intl developed $VEA
  • 20% Emerging markets $VWO

The point is to hold the entire global equities market in equally weighted segments in a way that reduces correlation. Yearly rebalancing brings them back to equal weights. By the way, for those of you who are interested, back test this portfolio on a site like portfoliovisualizer.com and you'll see it does much better than simply buying the S&P500 or $VTI, etc.

Anyways, getting to the point of my post. There are a number of funds I could choose for the US large-cap portion:

  • Vanguard Large Cap ETF$VV – 0.06% exp ratio – $9.7B fund – Currently my entire US large-cap allocation is in this fund. Vanguard's Large Cap fund is great. Low cost. Does what it's supposed to. Holds about 600 stocks. A bit too many mid-cap for my taste, which increases correlation with my mid cap index fund ($VO).

  • Vanguard Mega Cap ETF$MGC – 0.07% exp ratio – $1.3B fund – Despite the name, this fund is basically just Vanguards $VV fund but with the top 250 stocks. Nice because it sheds VVs mid caps, but overall it isn't anything special or interesting. Probably preferable to what I'm doing, but only over many decades will I see a difference.

  • iShares S&P 100 ETF$OEF – 0.2% exp ratio – $4.8B fund – Now things are getting interesting. This fund offers better non-correlation with the rest of my funds by holding just the biggest 100 companies in the US. However, the drawback is the expense ratio has tripled and the fund is no longer held by Vanguard, which is a negative in my opinion since I love how Vanguard is owned by the fund shareholders.

  • Guggenheim S&P 50$XLG – 0.2% exp ratio – $648M fund – Perhaps the most interesting of the bunch. Now we're holding just the top 50 biggest companies in the United States. However, the expense ratio is still triple what Vanguard's is, and the fund is ran by Guggenheim, which I don't enjoy as much as Vanguard. Plus, at this level the sector weightings of this fund begin to diverge from the Large Cap of the US economy. There are no holdings in Basic Materials and Utilities here, whereas in larger funds like VV there is. In contrast, XLG has a very large technology holding, which makes sense since Apple and Microsoft are the two biggest companies in the US. I suppose the comeback to this critique is that this fund would rebalance into whatever companies would rise up in the future, whether or not they are tech.

  • Bridgeway Blue Chip 35$BRLIX – 0.15% exp ratio – $552M fund – This is the top 35 companies in the US, so it's the most extreme of the large-cap funds. I think it calls its holdings Ultra Caps (vs. large caps and mega caps). But it's a mutual fund, not an ETF. I've never heard of Bridgeway before either.


Here's a chart showing the 5-year performance of these funds


Over the past 5 years (which doesn't necessarily mean much) you can see the Vanguard funds actually outperform the rest, with the $VV Vanguard Large Cap in the lead with 80% gains. On the lower end there's $XLG with 71% gains and $BRLIX with 68% gains.

My point of writing this post is to ask what fund you think I should choose to represent my large-cap allocation considering I'm going for a healthy trustworthy fund that has lower correlation with the rest of my allocations (midcap/smallcap/intldeveloped/emergingmarkets).

For example, yes $XLG has almost 10% lower returns than $VV over 5 years, but if I'm annually rebalancing into mid and small cap index funds then the point isn't necessarily outperformance but a mixture of outperformance and non-correlation. I mean, $VV is probably only outperforming the rest because it's 600 holdings mean it holds smaller companies than the rest. And in this way, perhaps I should switch to $XLG. But I trust and enjoy Vanguard's funds, and don't really know much about Guggenheim. Confusing!

All in all, I'm trying to balance performance, non-correlation, trustworthiness of the fund operator, etc. I'm happy with $VV but I'm tempted to switch into something more suited for my equal-weighted purposes.


Submitted July 13, 2017 at 08:01PM by ThePastIsPrelude
via http://ift.tt/2ufETkD


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